Riverside Co. nets $1.2 billion for latest micro-cap fund

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Riverside co-CEO Stewart Kohl

The global private equity firm, co-headquartered in Cleveland, exceeded the target goal for Riverside Micro-Cap Fund V fund by 50%, raising all that capital in less than four months. Its prior micro-cap fund closed at $650 million in 2016.

The Riverside Co. has closed fundraising for its latest micro-cap fund at its hard cap of $1.2 billion.

Riverside Micro-Cap Fund V (RMCF V) saw fundraising completed in less than four months with demand exceeding the hard cap by more than 50%. It's also a significant increase over the private equity firm's last micro-cap fund, which closed at $650 million in 2016, exceeding its target goal by 30%.

"This level of investor support is the direct result of the quality of work done by the RMCF team. The RMCF platform investments have grown sales at a CAGR of 23% since the fund's inception and equally impressive, have organically grown employee headcount by 27% at the portfolio company level," said Riverside Co-CEO Stewart Kohl in a statement. "This is a remarkable body of work, and it has been most gratifying to see how well these companies have flourished."

The fund will target fast-growing North American companies with generally up to $10 million of EBITDA. It features at least 176 investors, according to a company filing, and featured a minimum investment of $78,469.

The RMCF team has invested in more than 55 platform companies and 75 add-ons since 2005, while exiting more than 30 over that time.

The speed with which the fund was raised and the massive size that it ultimately ballooned to reflects the state of the private equity and overall M&A sectors today. As of June, the global supply of dry powder topped $1.07 trillion, setting a new high-water mark for the industry, according to research firm Preqin. At least $3 trillion has been raised for funds in the past five years.

"We're delighted to announce the first and final closing of our fifth fund and equally as grateful for the overwhelming response from both new and existing investors," said RMCF managing partner Loren Schlachet in a statement. "We're proud to have built such a strong team over the last fourteen years that is committed to finding, investing and growing businesses."

The level of capital flooding investors in the M&A sector is creating a seller's market as more dollars chase fewer deals, hiking price multiples and putting pressure on firms to achieve the same returns on deals they have been seeing in years past. Those trends are shifting strategies at many firms, several of which are increasing going downstream toward smaller companies (larger companies are historically where the most value and best returns are realized).

Riverside is a global private equity firm co-headquartered in New York and Cleveland — it's the largest firm of its sort in this market — investing in growing businesses valued at up to $400 million.